Northern California Leads State Growth, Another Oil Boom?

Job growth in the San Francisco and San Jose metro areas continues to outpace the national and state averages. Technology firms are still hiring aggressively, and property markets are heating up. On a year-to-year basis payroll employment in the San Francisco metro area was up 2.7 percent in December, and San Jose was up 3.2 percent, both well above the U.S. average of 1.6 percent and the state average, also 1.6 percent. Labor market improvement has been relatively stronger for tech-boosted San Jose. The San Jose metro area unemployment rate was well above the U.S. average in 2009, but was just a tick above average at 7.9 percent in December, when the U.S. had a 7.8 percent rate. San Francisco’s unemployment rate has trended very close to the U.S. average for several years, now slightly better than average at 7.6 percent as of December.

The combination of federal and state-level tax increases is a headwind for California. The state income tax is the highest in the country and is the highest within the state since World War II. The state sales tax, at 7.5 percent is also the nation’s highest. On the positive side of the state tax hike, Governor Brown’s administration is projecting a state budget surplus for the upcoming fiscal year and beyond. If sustained, the turnaround in state finances will likely boost the state’s credit rating, making it easier for the state to borrow money.

Northern California has the potential to significantly expand oil production. The Monterey Shale, extending from San Francisco to Los Angeles is estimated to hold 400 billion barrels of oil, thought to be made recoverable by new drilling technology. California’s complex geology and strict environmental regulation will make retrieving the oil relatively expensive, but the vast volumes of recoverable oil are compelling. The shale play is still in the early stages of exploration. No commercially successful wells have been drilled to date.